The mortgage and debt reduction act has been extended but only through the end of the year. This means you have to close by December 31, 2013. This is important because without it you may be liable for income tax on the forgiven debt whether you short sale or later go into foreclosure. If you are struggling to make ends meet and have negative equity in your home a short sale can help you get a fresh start. Get out from the burden of a cumbersome mortgage payment and toxic asset with negative value. Start fresh and in as little as three years buy a new home with a manageable payment and start re-build equity and wealth.
What about a modification? Most lenders are now offering modifications to homeowners in distress. These are often more of a temporary solution as the banks seldom offer principal reductions. Usually the bank will offer to lower you payment over a fixed period of time. The problem with these terms is that without a principle reduction you are not building equity. In today’s market where a homes value may be upside down or have a negative equity, projections show it would take years just to break even on the balance of the loan. This makes your situation like a long term lease.
Foreclosure or simply walking away from the home is another option. California is a non-recourse state and has what is called a one action rule which basically states that if your homes is foreclosed and sold by the trustee that is the only recourse for the lender. Which means, generally speaking you can walk away with little or no legal consequence.
However if you have a second loan it could very well be a recourse loan which means the lender can, and most likely will pursue other assets and wages. A short sale will prevent this. If you are considering a default I highly suggest you look into a short sale an option. Choosing a short sale will put you back in control of your life and when you need to move. Because a short sale is perceived as a proactive choice by the borrower the credit compiling agencies tend to score it higher than a foreclosure or a deed-in-lieu.
I would always advise my clients to seek advice from an attorney under bankruptcy protection a well. Many homeowners have incurred a substantial amount of debt in this economy and a bankruptcy may be a good option to help you afford to keep your home by eliminating burdensome debt. Although legally you may not need to pursue a short sale after the bankruptcy, in regard to credit building it is still a good option.
Let me be clear, I am not advocating to anyone to ignore their financial obligations. What I am saying is that you should look at your own situation and make the decision that is best for YOU and your family and not the bank.
Take control of your situation and call an experienced Short Sale agent today to discuss and compare your options.
Patrick McCarran is a local Realtor and can be reached at (925) 899-5536 or www.Callpatrick.com. Prudential California Realty is an independently owned and operated member of The Prudential Real Estate Affiliates, Inc., a Prudential company. Equal Housing Opportunity.